Tequila Sun Sets on Fields of Fortune

Submitted by Tequila.net
June 27, 2007

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Agave growers sought to cash in on Mexico's prized liquor, and many now face ruin

AHUALULCO, Mexico -- Tequila could be the ruin of Fernando Chavarin.

The sugar cane farmer has invested $18,000 to grow agave, the spiky plant and raw material for Mexico's national liquor. He couldn't resist jumping in. Agave prices had soared because planting had not kept up with the global thirst for tequila.

Unfortunately for Chavarin, thousands of other farmers, and even lawyers and doctors from urban Guadalajara, had the same idea. As the crops planted in 2000 and 2001 reach their cycle for harvest, the market is drowning in agave.

The oversupply has caused prices to tumble to less than $4 per typical 90-pound plant, from a peak of $70. Agave farmers are going bankrupt, even burning their crops in despair. Some farmers have blockaded tequila distilleries, begging them to buy their plants before they rot away in the rugged fields of Jalisco state.

"We all thought we were going to be rich," said Chavarin, 51. "But we can't scold anyone. We have the blame for planting it. If we lose it, we lose it. I'm not going to cry."

The debacle has seen agave farmers and tequila producers try to rein in the roller-coaster cycle of planting that is a response to wild swings in price. The Mexican government now requires agave farmers to register their planting, and the tequila industry is monitoring crops with satellite photography.

As the government weighs tactics to solve the crisis, tequila producers fear the market may overcompensate and that too few agave farmers will plant crops this year. That could cause an agave shortage years from now and put the brakes on a tequila industry that generates more than $300 million in annual exports.

Government officials have long been protective of the agave plant, a fixture since it symbolized the goddess of fertility to the Nahuatl people in pre-Columbian times.

Mexico confines agave production to parts of five states if it will be used for official tequila. Further confirming the crop's status as a national icon, UNESCO designated Mexico's agave fields and tequila facilities as a World Heritage Site last year.

From mom-and-pop operations to behemoth Jose Cuervo, tequila-makers have watched their product skyrocket in popularity. Thanks to a growing Hispanic population and hip tequila bars like Salud in Chicago's Wicker Park neighborhood, exports to the U.S. in 2006 topped 28 million gallons, a 21 percent increase from 2005.

Farmers, however, didn't see agave as a cash crop in the early 1990s and planted very little. That prompted a shortage in 2000, causing prices to skyrocket from 5 cents to 64 cents a pound. The crop peaked in 2003 at about 70 cents, according to industry data.

Even engineers and doctors from Guadalajara, Mexico's second-largest city, bought agave plots as investments. One industry official produced a newspaper ad from several years ago that promised a return of $120 million an acre, an impossible claim.

Agave harvest cycle is 7 years

The National Chamber of the Tequila Industry estimates that agave farmers planted a total of about 300 million plants from 2000 to 2003, nearly four times what the industry typically requires. With a harvest cycle of about seven years, the first crops are now ready.

Rogelio Ruiz, whose family has produced tequila and planted agave since the 1880s, shakes his head at the stampede of newcomers to the agave industry.

"Those of us who know the tradition know there are highs and lows," said Ruiz, of La Escondida distillery. "Imagine me trying to plant corn and sugar. Imagine if I would try to be a journalist. How well do you think it would work?"

Chavarin, the sugar cane farmer, is a case study of the pitfalls facing inexperienced agave growers. He has sold only 50 tons of the 450 tons of agave he has harvested this year. He has until November to sell the remainder before it goes bad.

The agave growers union has responded by blockading distilleries to pressure them to buy excess agave. The tequila industry offered a token response, including occasional lotteries among farmers to buy small batches, and the production of surplus tequila that can be aged for about a year and sold as the reposado variety.

Enrique Mendez, an executive with one of the national agave farmers unions, said he is bitter that the tequila industry is playing hardball. In some cases, tequila-makers are approaching desperate farmers and buying their crop at less than 2 cents per pound, half the already-low official rate, he said.

"For those prices, we can't even buy a pair of pants to harvest our crops," Mendez said.

Arnulfo del Toro, a top official with the national agriculture department in Jalisco, said government officials have approved $12 million to bail out agave farmers. But officials haven't yet determined how to spend that money. Alternate uses for the agave sugar, such as a honey that can be safely eaten by diabetics, is among the ideas under study.

Officials also are weighing a subsidy of agave prices, matching 1 peso for every peso that a tequila producer offers.

As the government drags its feet, many farmers are facing ruin, Mendez said. He said the proposed remedies don't go far enough.

"It's like taking an aspirin for a cancer," he said.

Steps taken to arrest cycle

To bring order to agave production, the Mexican industry last year began requiring farmers to register their crops. Officials hope they can then warn prospective farmers if the market is likely to be saturated again in seven to eight years.

The Tequila Regulatory Council, an industry group, also has launched an online system in which tequila producers log each agave purchase. Industry watchdogs can then track trends in real time. The council also has purchased satellite photos to compare agave planting from year to year.

Del Toro worries that the price free-fall may cause farmers to give up on agave again. Officials report that about 20 percent of this year's crop has a disease, a sign that farmers have turned their backs on their crops. Also, corn production in Jalisco is up an estimated 15 percent this year, a response to another boom -- high corn prices fueled by its use in ethanol. Del Toro worries that some agave farmers might switch to corn permanently.

The fear is that in a few years there could be an agave shortage that would rein in an industry set to explode.

The Mexican government this year began promoting a Tequila Route, with the wine country of California's Napa Valley as a model, that will draw tourists to visit distilleries, such as the Don Valente operation.

Company executive Marco Antonio Jauregui said one would assume that he would be gleeful at the low agave prices, but he shares the fears that his key suppliers may dry up.

"We aren't pleased that there is this much agave in the ground," he said. "Yes, it helps us in the short term, but the tequila-makers, we could end up losing. The agave farmers and the tequila-makers, we need each other."